Will a Mortgage Default or Foreclosure Affect My Military Security Clearance?

Learn what effect a mortgage default or foreclosure might have on your job if you need federal security clearance.

If you hold or are applying for a federal security clearance and have fallen behind in mortgage payments or are in foreclosure, your financial situation could put your job at risk. Keep reading to learn more about how missed mortgage payments and foreclosure can affect your security clearance.

Security clearance is needed in a wide range of jobs, from senior management to janitorial. And because the federal government uses contractors to perform many functions, people in the private sector may need security clearances as well.

(If you are a military member struggling with debt or facing foreclosure, visit our Special Protections for the Military: Bankruptcy, Foreclosure & Debt Collection topic page.)

(To learn the ins and outs of the foreclosure process, and foreclosure procedures in your state, visit our Foreclosure Center.)

What Is Security Clearance?

The federal government grants security clearance to certain people who need access to classified information to perform their duties. There are three levels of security classification:

  • confidential
  • secret, and
  • top secret.

The purpose of a security clearance is to ensure the likelihood that a person will be able to safeguard classified national security information. Since the government does not want classified information to be disclosed, it closely scrutinizes and investigates those who are granted security clearance.

Factors Affecting Security Clearance

Various reasons exist for why someone may be denied or could lose a security clearance. Conduct involving questionable judgment, untrustworthiness, unreliability, lack of candor, dishonesty, or unwillingness to comply with rules and regulations could indicate that the person may not properly safeguard classified information.

In general, decisions regarding security clearances take into account multiple factors such as:

  • personal conduct
  • history of alcohol or drug abuse
  • criminal conduct
  • ties with foreign individuals and countries
  • personality disorders, and
  • financial responsibility.

Why Your Financial Situation Is Relevant to Security Clearance

An issue involving financial mismanagement (including falling behind in mortgage payments or going through foreclosure) is relevant to security clearance because, under government guidelines, the failure of security-cleared workers to live within their means and pay off debt suggests a lack of self-control, poor judgment, and an inability to follow rules. This raises concerns about a person’s ability to protect classified information, as well as suggests that he or she could be more open to bribery or blackmail because of the debt.

How Missed Mortgage Payments or Foreclosure Affects Security Clearance

If you have a security clearance and fall behind on your mortgage or go through a foreclosure, you could be denied (or lose) your security clearance, but not always. The government will look at the whole picture in determining whether it is in the interest of national security that you be granted a clearance or retain your current clearance.

When adjudicating security clearance cases, the government considers:

  • what you did to resolve your financial situation
  • whether the conditions that resulted in the situation were largely beyond your control, and
  • how quickly you resolved your financial problems.

The faster you take action and get your financial problems resolved, the better.

Example 1. Say you were forced to relocate due to military orders. You tried to rent out your vacated home, but couldn’t find a tenant. When you couldn’t afford the payments on two residences, the house went into foreclosure. You quickly arranged a short sale. The lender got a deficiency judgment after the short sale, but you paid it off. In this type of situation, your ability to gain or retain security clearance is probably not in jeopardy.

(Learn more about short sales to avoid foreclosure.)

(To get information about other options to avoid foreclosure, see our Alternatives to Foreclosure area.)

Example 2. Let’s assume you purchased a home at the height of the housing boom. After the interest rate adjusted, you struggled to make payments each month and eventually fell behind in payments. You tried to get a loan modification, but the lender denied your application after losing your paperwork. The loan was referred to foreclosure while the loan modification was pending (called dual tracking) so when you then tried to do a short sale, the lender said there wasn’t enough time to complete the transaction -- even though you had several offers on the property. The foreclosure was completed. Since there are no significant questions about your reliability, trustworthiness, and ability to protect classified information, your security clearance is probably not at risk.

Mortgage Defaults and Foreclosures are Reviewed on a Case-By-Case Basis

Basically, adjudicators want to see that you have made a good-faith attempt to fix your financial problem. If you never had financial problems in the past, yet went into foreclosure because of the housing downturn or because of a permanent change of station, this may not affect your security clearance. However, if you have a history of defaulting on financial obligations and go through a foreclosure, that could constitute a pattern of financial irresponsibility.

Lawmakers: Foreclosure Should Not Hurt Military Career

In 2011, the House passed the National Defense Authorization Act for Fiscal Year 2012 (H.R. 1540), which included a provision requiring the Secretary of Defense to give “special consideration” during the security clearance adjudication process to servicemembers with a record of foreclosure on their credit reports. This legislation would not have guaranteed that a foreclosure would not affect security clearance, but it would require that anyone with a foreclosure receive a more careful review.

Unfortunately, the special consideration proposal was not included in the final version of the law. But, this shows that lawmakers are aware that a foreclosure is not necessarily an indicator of a fatal flaw in a person’s character. This provision could be re-introduced at some point in the future, especially if foreclosures continue to remain at crisis-level in this country.

In the meantime, how you handle the situation, the circumstances, and whether there is a pattern of defaulting on debts are the main factors that affect your security clearance when it comes to mortgage defaults and foreclosure.

If you are struggling to make your mortgage, your home is underwater, or foreclosure is imminent, visit our Alternatives to Foreclosure area.

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